Asian stocks plunge; yen hits 3-month high

Retreat in equities carries over from last week; Hong Kong hammered

By

ChrisOliver

HONG KONG (MarketWatch) -- Stocks across Asia ended sharply lower Monday, with indexes in Japan, Malaysia, Hong Kong, and Singapore retreating more than 3% as investors reduced their exposure to the region following a weaker finish for U.S. stocks at the end of last week.

Japan's Nikkei 225 Index (1804610) posted its fifth losing session in a row, as Toyota Motor Corp. and other export-related shares in tandem with the yen rising to a three-month high against the U.S. dollar.

Shares of Toyota (7203)
TM, -0.84%
lost 3.2% on concerns the yen's rise to the 115 level to the dollar could begin to affect profits.

"There is a certain degree of panic in today's trading patterns," said Pauline Dan, fund manager with Manulife Asset Management in Hong Kong, where the Hang Seng Index ended 4% lower, losing 777.13 points to 18,664.88. The Hang Seng China Enterprises Index, a gauge of Hong Kong-listed shares of mainland companies, tumbled 5.1% to end 8,528.56, while China's Shanghai Composite Index reversed early gains to end 1.6% lower at 2,785.31.

"We don't really have a specific reason (for the sell-off), there wasn't any really bad news that came out from China or the U.S., but we were definitely taking cues from a weaker U.S. market and comments from Alan Greenspan over the past week," she said. The former chief of the Federal Reserve made comments on U.S. economic growth and the possibility of a recession in addresses to a pair of financial groups last week.

Dan added some of the selling was spurred by the unwinding of speculative positions funded by carry trades -- the practice of using low-yielding currencies to invest in higher-yielding currencies or assets.

"I think because of rich valuations some people were starting to exit and in this type of environment it's fairly easy to cause a stampede; there is a lot of margin built up in the system," she said.

In Tokyo currency trading, the U.S. dollar was quoted at 115.47 yen at 2.54 p.m. local time, near an intraday high of 115.46, its strongest level since Dec. 8. The dollar was quoted at 116.74 yen in late New York trading on Friday, and at 117.63 yen in late Tokyo during the previous session.

A strong yen is considered detrimental to Japan's exporters because it makes their goods less competitive while also lowering the value when overseas earnings are brought home.

Market watchers said some of the dramatic declines seen on regional markets were spurred by worries that there could be an "Asian contagion effect" in U.S. markets when they open later Monday.

"There is fear we could see more selling pressure in U.S. markets tonight, "said Louis Wong, director of research at Phillip Securities in Hong Kong.

U.S. stocks had their worst weekly percentage decline since March 2003 last week, as revised data showed the U.S. economy grew 2.2% in the fourth quarter, down from an initial estimate of 3.5% growth. On Wall Street last Friday, the Dow Jones Industrial Average
DJIA, -1.24%
fell 120.24 points to end 12,114.10, while the S&P 500
SPX, -1.54%
ended down 16 points at 1,387.17 and the Nasdaq Composite
$COMPQ
fell 36.21 points to 2,368.

Mainland back in focus

In hard-hit Hong Kong, shares of HSBC Holdings
HBC, -0.40%
(5) fell 2.5% ahead of its 2006 earnings. After the close of trading, the world's third-biggest bank reported a 5% rise in annual profit to $15.79 billion, with bad-debt charges jumping 36% to $10.57 billion, roughly inline with expectations.

"I'm not upbeat about the market direction," said Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong. "We advise clients to offload shares on any rebound, the market is moving lower."

Tang said the Hang Seng could decline another 500 to 1,000 points in the short term but is likely to continue its downtrend until reaching the 17,000 level around mid-year.

China Life (2628)
LFC, -2.76%
led declines among mainland financial shares following comments from Premier Wen Jiabao the government would move to restrict credit growth, along with other measures, in a bid to cool China's economic growth to 8% in 2007.

"We have to employ a full range of monetary-policy tools to appropriately control the supply of money and credit, and effectively address the problem of excess liquidity in the banking system," Dow Jones Newswires reported Wen as saying to the National People's Congress in Beijing on Monday.

Wen didn't offer any offer any specifics on what measures would be used to achieve the slowdown but added that the government would strive to keep inflation below 3% this year and would renew efforts to reduce the nation's trade surplus.

Wen also pledged China would also work to improve the yuan exchange rate. People's Bank of China governor Zhou Xiaochuan later said China wouldn't rule out a widening of the trading band but didn't provide specifics on the timing for such a move.

Analysts said the declines had pushed some shares into value-buying territory.

"If you have money to invest, this is your golden opportunity of the year," said Henry Chan, head of research at online financial portal Quam.

Glumness in Tokyo

A Japanese government survey released Monday showed capital investment by companies jumped 16.8% in the fourth quarter from the corresponding period a year ago, marking the 15th consecutive quarterly gain. The finance ministry also said the quarterly survey showed corporate profits increased 8.3% compared with a year earlier.

Shares of Sumitomo Metal Mining Co. (5405)(5713)shed 6.4%. The Nikkei newspaper reported Sunday that the mining group would record a pre-tax profit of 187.5 billion yen ($1.62 billion) for the fiscal year ending March 31, an increase of 30 billion yen from what was originally forecast.

The newspaper said major Japanese metal mining companies are likely to see higher profits this fiscal year as prices for nickel, copper and other industrial commodities rise on demand from China and other fast-growing emerging markets.

Shares of Victor Co. of Japan (6792), better known as JVC, bucked the downtrend to rise 1.5% after the Nikkei daily reported over the weekend the private-equity firms Texas Pacific Group and Cerberus Group are to make separate bids for the consumer-electronics maker as early as Friday.

The report said Matsushita Electric Co. (6752)
MC, -1.28%
which produces the Panasonic brand, is seeking to sell its 52.4% stake in JVC due to the subsidiary's underperformance and to reduce redundancy in some product categories. Matsushita shares were down 1.7%.

Shares of Toshiba Corp. (6502)
TOSBF, +1.56%
moved down 2.8%. Japanese media reported Monday that the company plans to accelerate production of its 56-nanometer NAND memory chips, commonly used in digital music players and other devices, as part of a broader restructuring of its semiconductor operations.

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